probable advantages and disadvantages of branch … branch unit banking banking banking arkansas...
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PROBABLE ADVANTAGES AND DISADVANTAGES OF BRANCH BANKING
FOR THE STATE OF KANSAS
by
ROBERT MELVIN DEAVER
B. A., Kansas State University, 1965
A MASTER'S REPORT
submitted in partial fulfillment of the
requirements for the degree
MASTER OF ARTS
Department of Economics
KANSAS STATE UNIVERSITYManhattan, Kansas
1966
Approved by:
Major Professor
ir-D
MI960"Q 3l$S table of contents
CD-Page
LIST OF TABLES , . iv
Chapter
I. INTRODUCTION 1
The Changing Nature of Kansas and Possible Need ForChanges in Kansas Banking Laws
The Growth of Branch Banking in Both Kansas and theUnited States
II. THE DIFFERENT FORMS OF BANKING 6
Unit, Correspondent, Branch, Group, and Chain BankingThe Different Types of Branch Banking
III. THE 'DUAL" BANKING SYSTEM IN THE UNITED STATES 13
The "Dual" Banking SystemFederal Banking LawKansas Banking Law
IV. BRANCH BANKING IN OTHER STATES 19
The ExtentSome Banking Laws in Other States
V. BRANCH BANKING STUDIES 25
Horvitz StudiesArizona—New Mexico Study
VI. ADVANTAGES AND DISADVANTAGES OF BRANCH BANKING FORKANSAS 34
The "Traditional" Arguments Given For and AgainstBranch Banking
Growth in the Number of Suburban Banks in WichitaSince 1950
More Extensive Branch Banking for Kansas
ii
LIST OF TABLES
Table H§»
1. Urban Versus Rural Population in Kansas for the "euro
1940, 1950, and 1960 1
2. Population Growth in Wichita and Topeka--Selected Years . . 2
3. Number of Branch Banking Systems and Unit Banks in the
United States by Selected Years from 1900-1962 4
4* Commercial Banks and Branches in Kansas by SelectedYears from 1919-1964 5
5. Banks in Kansas, 1953-1962 14
6. Classification of States by Branching Law 19
7. Number of Commercial Banks and ConcentrationDecember 31, 1962 20
8. The Banking Laws of Some States Permitting LimitedDegrees of Branch Banking ..... 24
9. Growth in the Number of Wichita Banks (1950 to 1965) ... 39
iv
CHAPTER I
INTRODUCTION
The Changing Nature of Kansas and Possible Need
For Changes in Kansas Banking Laws
Kansas is changing from the traditionally rural state it has been
in the past into an agricultural state containing growing areas of urban
population (see Table 1) such as Wichita, Topeka, and Kansas City* It
appears probable that this trend will continue into the future and may
require the enactment of new laws designed to cope with this*
TABLE 1*
URBAN VERSUS RURAL POPULATION IN KANSAS
FOR THE YEARS 1940, 1950, AND 1960
Year X of Kansas Population Urban I of Kansas Population Rural
1940 41.91 58.11
1950 52.1% 47.91
1960 61.0% 39.0X
*Prom statistics given on page 18-12 of the Census of Population ;
1960 . Vol. I, Part 18, Kansas. Washington, D. C. : United States Bureau
of the Census.
Present Kansas Law prohibits branch banking to any extent in
Kansas greater than one drive-in branch ("auxiliary teller office to
be used as a motor vehicle, off-street banking facility") located
within 2,600 feet of the bank which operates it. 1 Some of the city
bankers in Kansas feel that this law is too restrictive on then and
places then in a "squeese." They suggest that, although this law
may be adequate for the rural areas in Kansas, it does not give the
banks in the major urban areas of Kansas sufficient leeway to deal
with their probleaa. As the major cities in Kansas are growing (see
Table 2). and more and more people are moving to the suburbs, "these
banks feel that they must move along with their customers or lose
valuable accounts.'..2
TABLE 2*
POPULATION GROWTH IN WICHITA AND TOPEKA—SELECTED TEARS
-:,
.,,)':,
";i:
Year
City 1940 1950 1960 1965
Wichita
Topeka
114,966
67,833
168,279
78,791
254,698
119,484
approx. 275,000
approx. 127,500
*?rom statistics given on page 18-28 of the Census of Population ;
I960 . Vol. I, Part 18, Kansas. Washington, D. C. : United States Bureau
of the Census; and from statistics given in the Rand McNally International
Bankers Directory, The Bankers Blue Book (Chicago, Illinois: Rand McNally& Company, Final 1965 Edition).
Wichita is the outstanding example of this phenomenon in Kansas.
In 1950, there were 6 banks in Wichita; in 1965, there were 14 banks in
Section 1, Chapter 72 of Senate Bill No. 105 (from the Laws of
Kansas—1957)—Banks and Banking. Approved April 5, 1957.
2United States House of Representatives, Banking Concentration
and Small Business (4 Staff Report to the Select Committee on SmallBusiness. 86th Congress, 2nd Session, December 23, 1960), p. 48.
3
Wichita--an Increase of 8 banks (133 1/3 per cent). 1 Seven of the eight
new banks since 1950 were suburban banks, 2 and it seems reasonable to
assume that the existing downtown banks could have efficiently handled
a portion of this growing suburgan business, if they had been permitted
to do so under a more liberal banking law in Kansas. Some of the city
banks feel that the present banking law is tending to "stifle" the
growth of the downtown banks in the three main metropolitan areas of
Kansas; and yet, they are afraid to "speak out" for fear of antagonizing
the small banks in Kansas and losing correspondent business from them.
Small banks usually fear—and perhaps with some basis—that large
"monopolistic banking empires" would be built as a result of banking laws
which would be liberal enough to permit city banks to buy up large num-
bers of small, rural banks in areas of the state far distant, both econ-
omically and geographically, from the buying city banks. The rational
answer to this problem would seem to be a more liberal banking law
for the three major metropolitan areas in Kansas and yet a retention
of the present banking law for the rest, or more rural part, of Kansas.
Later, as cities such as Salina, Hutchinson, and Lawrence grow and
develop, perhaps a third area of banking law could be created which
would meet their needs—somewhat more restrictive than that for the
major metropolitan areas and yet more liberal than for the rural areas.
Rand McNally International Bankers Directory, The Bankers BlueBook (Chicago, Illinois: Rand McNally & Company), Final 1950 andPinal 1965 Edition.
HThe 8th bank was The Wichita State Bank, a new downtown bank(across the river, and about % mile from the other downtown banks).
The Growth of Branch Banking in both
Kansas and the United States
Branch banking is a growing phenomenon in America. As is shown
in Table 3, the ratio of branch banking systems to unit banks has gone
from .010, in the year 1900, to .242, in the year 1962. Even in Kansas,
under the strict definition of branch banking and with the strong limi-
tations placed upon it, branch banking has grown rapidly in the last
few years. As is shown in Table 4, the number of branches in Kansas has
grown, from almost a negligible number prior to 1950, to 22 in 1960 and
to 47 in 1964... the growth in the number of branches in the 4-year period
from 1960 to 1964 being almost 114 per cent.
TABLE 3*
NUMBER OF BRANCH BANKING SYSTEMS AND UNIT BANKS
IN THE UNITED STATES BY SELECTEDYEARS FROM 1900-1962
Year
BanksOperatingBranches
Unit
Banks
Ratio Of
Branch toUnit Banks
1900 87 8,651 .010
1910 292 21,194 .014
1920 530 28,129 .019
1930 750 22,295 .034
1940 954 13,334 .072
1950 1,291 12,830 .101
1960 2,329 11,143 .209
1962 2,619 10,808 .242
^Summarised from TableReview. Vol. 1, No. 3, March
12,1964.
page 319 of The National Banking
TABLE 4'
Year
1919
1934
1946
1950
1960
1964
COMMERCIAL BANKS AND BRANCHES IN KANSASBY SELECTED YEARS FROM 1919-1964
Banks Branches
1,304
752
614
612
587
594
1
22
47
Total
1,304
752
615
612
609
641
Summarized from Table 3, p. 25 of The Banking Structure inEvolution , The Administrator of National Banks, United StatesTreasury, 1964.
In the United States branch banking "is growing in both relative
and absolute importance." 1 Today, branches of banks make up "nearly
one-half of all commercial banking offices in this country. This is
in contrast to earlier periods when, as recently as 1949, branches of
banks accounted for less than one-quarter of the total number of bank-
ing offices."2
iLeland J. Pritchard, Money and Banking (Boston, Massachusetts:Houghton Mifflin Company, 1964), p. 132.
'Ibid.
CHAPTER II
THE DIFFERENT FORMS OF RANKING
Unit, Correspondent, Branch, Group, and Chain Banking
In spite of the inroads branch banking has made on our banking
structure in the United States, we are still considered to have a unit
banking system. We have more than 10,000 banks (see Table 3), while in
England and Wales five banks and their branches account for three-
fourths of the banking resources—and branch offices* Canada, for
instance, has only eleven chartered banks, three of which "dominate
the field of commercial banking." 1
A unit bank can be defined as a single-bank corporation which
operates only one banking office and is not related to other banks,
either through ownership or control. A unit bank is not controlled
by another bank, person, group, or corporation: and it does not itself
control other banks.
Correspondent banking acts as a supplement to the unit banking
system. It works in the following manner: smaller, outlying banks main-
tain "non- interest bearing accounts" with their city correspondent banks.
Hf. H. Steiner, Eli Shapiro, and Ezra Solomon, Money and Banking .
An Introduction to the Financial System (New York: Holt, Rinehart andWinston, Inc., 1958), p. 86.
Pritchard, p. 131.
7
In return for this, these city correspondent banks provide check clearing
services, aid in buying and selling bonds, banking and technical infor-
mation, and other services for these smaller banks. If the customer of
a small bank wants trust services, a larger loan than the "loan limit"
of the smaller bank, or other services which the smaller bank wouldn't
otherwise be able to provide on its own; this bank is able to provide
these things through the aid of its larger, city correspondent bank.
Branch banking exists when a single banking corporation, having
one group of directors and one charter, directly owns and operates more
than one banking office...with each local office being supervised by a
manager appointed by the officers of the bank. 2 Once a branch banking
corporation exists, there are two ways in which it can expand* It can
expand by buying up, or emerging with, existing banks; or it can expand
by forming de novo * or new branches.
The following passage from, Biography of a Bank, The Story of the
Bqnk of AffWrl^fi gives a good description of the workings branch banking:
Loans are made direct by the branches, except in instances wherethe amount is unusually large or the branch manager wishes to secure
the advice of the head office credit department. The customers of
the branch deal with the local officers, and only in extraordinarycircumstances are they brought into contact with the head officedepartments. Each branch has a general lending limit fixed by the
bank's finance committee. Within this limit each branch may lend
and report without previous consultation with the head office.
These limits vary with the proven credit capacity of the various
Banking and Monetary Studies , edited by Deane Carson (Homewood,Illinois: Richard D. Irwin, Inc., 1963), pp. 301-302.
2W. H. Steiner, Eli Shapiro, and Ezra Solomon, p. 87.
branch loaning officers. ... All applications for unfixed lines
of credit in excess of the lending limit of a given branch are
promptly considered and acted upon by the proper central credit
department and proper advice and instructions issued. The broad
fundamental policies respecting credits are outlined by the general
executive committee and application is then made by the credit
department.
*
Each branch of a branch banking corporation carries on the same
kind of activities performed by unit banks; however, trust, investment,
and other kinds of specialized banking services are usually limited to
the main office and to the larger branches. In communities too small to
support a full-scale bank, a branch may be little more than a "teller's
window" limited to receiving and paying deposits and taking applications
for loans. In other communities where there is a need for some banking
services, but not on a full-time basis, branch offices operating on a
part-time basis are capable of taking care of the banking needs ...and
although branches located in quite small communities may have only the
minimum of facilities, they are able to arrange through the head office
2for all types of banking services.*
Group banking refers to an arrangement by which two or more
separately incorporated banks are under the control of a holding company,
or separate corporation. 3 This holding company controls banks that have
, , I I , | | ||
- . . . . i —
.
t
Marquis James and Bessie Rowland James, Biography of a Bank ,
The Story of Bank of America (New York: Harper & Brothers, 1954),
p. 90.
2Gerald C. Fischer, Bank Holding Companies (New York: Columbia
University Press, 1961), p. 47.
"
Tinancial Institutions » edited by Roland I. Robinson (Homewood,
Illinois: Richard D. Irwin, Inc., 1960), p. 136.
9
separate charters and boards of directors. 1 According to Gerald C.
Fischer in his book, Bank Holding Companies , "economies and efficiencies"
exist in group banking, but not to the degree that they exist in branch
banking. According to Fischer:
Many of the problems of the small bank owner can be solved through
the formation of a group of cooperating banks. The marketability
of shares can be improved, specialists can be employed, elaborate
machinery can be installed at the headquarters to serve the members,
and numerous other advantages of a sizable branch system can be en-
joyed without the considerable sacrifice of local autonomy whichoccurs in a branch system.
2
From the banks that Fischer had analyzed for his study, he came to
the conclusion that, "The group system has been able to offer considerable
financial gain to the stockholder of a small bank. The holding company's
shares, when an exchange of stock occurred, were usually more marketable,
provided a higher rate of return on book value, and resulted in a tax
saving for the owners. "3
According to the Federal Bank Holding Company Act of 1956, a bank
holding company is defined as any company owning 25 per cent or more of
the voting shares of two or more banks or which in any manner controls
the election of a majority of directors of two or more banks. Holding
companies are required to register with the Board of Governors of the
Federal Reserve System and to obtain consent to acquire more than 5 per
cent of the voting stock of any bank. No bank holding company is permitted
Marquis James and Bessie Rowland James, p. 298.
rischer, p. 141.
3Ibid . . p. 140.
10
to acquire ownership or control in any company other than a bank. 1
Chain banking is quite similar to group banking, except that the
control of two or more banks is held by one individual, or by a group
of individuals, through interlocking directorstes--the same man, or
men, sitting on several boards of directors. Chain banking has pri-
marily been a development in agricultural areas and has achieved its
greatest significance "in a few middle western states where branch
banking is prohibited."2
According to Mr. Carl A. Bowman, Executive Secretary of the Kansas
Bankers Association, chain banking "isn't significant in the state of
Kansas."3 Mr. Bowman said that, primarily, only two chain banking systemi
operate in the state of Kansas~"the Chandler banks" and those owned by
a man named "C. H. Goppert"--but that they don't significantly influence
banking in Kansas. According to Mr. Bowman, one of the major advantages
of chain banking, as it exists in Kansas, is that it has certain ad-
vantages in buying securities—for example, in being able to buy munici-
pal bonds in larger blocks.
^
Satellite or affiliate banking is somewhat similar to chain
banking, but according to Mr. A. K. Davis, President of the American
Financial Institutions , p. 137.
Ibid., p. 139.
3From an interview with Mr. Bowman in June of 1966.
4Ibid.
11
Bankers Association, it "has some resemblance to chain banking but
control is somewhat looser." 1
Branch banking, group (or holding company) banking, and chain
(and affiliate) banking are similar to each other in that they are all,
"devices whereby several banks are brought under a single control. "2
In states where branch banking is prohibited by law, these other forms
have a tendency—when not prohibited by law—to come into existence.
According to Mr. Carl Bowman, there are 33 one-bank holding com-
panies in Kansas. They are permitted by Federal and State law—and are
not covered by the Federal Bank Holding Company Act of 1956—because
they affect only one bank. The advantage of these, according to Mr.
Bowman, is that they are a way in which a young banker can gain control
of a bank- -for example, through the use of an Insurance Agency as a
holding company. Again, as with chain banking, these aren't a par-
ticularly "significant" influence in Kansas banking, said Mr. Bowman. 3
The Different Types of Branch Banking
Branch banking may vary greatly in its scope or extent. Branch
banking may be nation-wide, such as it is in Canada or in England; it
may be state-wide, as it is in California; or it may be limited to a
—^——^—^—^—^—— .... ...r ,--, . , ,|inin , M a ia a, nm M , m i , lt _x . i n » i mijwii» u ,±. ..
Hte Must Keep Building (Address of Archie K. Davis, President, TheAmerican Bankers Association, before the Midwinter Meeting of the OhioBankers Association, Sheraton Columbus Hotel, Columbus, Ohio, Friday Noon,February 18, 1966.)
2United States House of Representatives, Banking Concentration and
Small Business (A Staff Report to the Select Committee on Small Business.86th Congress, 2nd Session, December 23, 1960), p. 2.
^rom the interview with Mr. Bowman in June of 1966.
12
geographic, or economic region within a state. Several of the possible
geographic limitations to branch banking within a state are as follows:
branch banking within the "city limits" of the major cities of a state;
branch banking within, say, 15 miles of the city limits of the major
cities of a state 1 or branch banking, 'within the head-office county
or counties contiguous to it. "2
Branching may be limited to certain "regions" within a state.
A state legislature may divide a state into regions- -within which banks
are permitted to branch and merge, subject to certain restrict ions- -using
geographic and economic factors as criteria in establishing the borders
for these regions. For example, in New York State, 1934 legislation
divided the state into 9 banking regions, or districts, designed to
work in this manner. 3
The Monopolistic Character of Branch Banking (An Address given
in 1965 by John F. McCarthy, President, Illinois Bankers Association.)
Pritchard, p. 133.
3New York State Banking Department, Branch Banking. Bank Mergers
and The Public Interest (January, 1964), p. 8.
CHAPTER III
THE "DUAL' 1 BANKING SYSTEM IN THE UNITED STATES
The "Dual" Banking System
The "Dual Banking System" in the United States, with the co-
existence of national banks and of banks chartered by the SO states,
is unique among the nations of the world. 1 This system "springs
from the continuing conflict between Federal power and States rights
which has characterized American politics over the years."2
Table 5 gives a comparison between the number of national banks
and state banks in Kansas during recent years--1953 to 1962.
In the United States, as of December 31, 1958, only 34 per cent
of the total number of commercial banks were national banks, and yet
they held over 50 per cent of all commercial bank deposits. Thus,
although national banks are of a larger average size in the nation as
a whole, the larger number of state banks exists because, "State regu-
lations, in general, permit more freedom in the use of funds and an
enhanced earning position when compared with national regulation."3
united States House of Representatives, Banking Concentration andSmall Business (A Staff Report to the Select Committee on Small Business.86th Congress, 2nd Session, December 23, 1960), p. 1.
2Ibid.
financial Institutions , pp. 128-129.
13
14
TABLE 5W
BANKS IN KANSAS, 1953-1962(DECEMBER 31)
Year National Banks State Banks Total
1953 172 434 606
1954 170 432 602
1955 170 431 601
1956 170 428 598
1957 169 426 595
1958 169 424 593
1959 169 424 593
1960 167 420 587
1961 167 423 590
1962 168 425 593
Froi
, Int.
a Table 1. page 19, An Evaluation of Commercial Banking in
Kansas ernal Report to the Kansas Bankers Association, by Philip B.
Hartley and Robert D. Schrock.
Federal Banking Law
Generally speaking, national banks operating within a given state
are subject to the same limitations and restrictions as the state banks
operating within that state in respect to branch banking. Thus, in a
state where branch banking is permitted by the state law, national banks
may establish and operate branches to the same extent that the state
banks are permitted to do so. In a state where branch banking is pro-
hibited by the state law, national banks are held to the same restrictions
as the state banks... and thus are not permitted to establish branches.
The following are the major provisions of federal laws relating
to the establishment of branches—as a result of the Federal Reserve
Act of 1913, the McFadden Act of 1927, the Banking Acts of 1933 and
1935, and various rulings of the Board of Governors and the Comptroller
of the Currency:
15
1. Both national and state member banks may establish branches
in their main office cities if the laws of the state specifically
authorise state banks to establish such branches. They may also
establish state-wide systems if state law allows, with the proviso
that member banks must meet the minimum capital requirements fixed
by federal law. The effect of this provision is to make total
capital requirements much more onerous than is required by most
state laws.
2. The approval of the Comptroller of the Currency for national
banks and the approval of the Board of Governors for state member
banks is required before any branch may be moved or established.
3. State banks that are insured by the FDIC but are not members
of the Federal Reserve may not establish or move a branch without
the consent of the FDIC, but there is no other quantitative re-
striction by the FDIC. 1
Therefore, in summary, a national bank generally, "has the same
right to establish branches as it would if it were a state bank, except
that there are special requirements as to capital and the approval of
the Comptroller of the Currency is required."2
Kansas Banking Law
As stated previously in this paper, present Kansas Law prohibits
branch banking to any extent in Kansas greater than one drive-in branch
located within 2,600 feet of the branch which operates it. This is an
oversimplification of the banking law in Kansas, so at this point it
seems appropriate to give complete quotations of the portions of Kansas
law pertaining to branch banking and bank holding companies. The follow-
ing deals with the establishment of bank branches in Kansas:
Fritchard, p. 133.
2Gavin Spofford, Guideposts for Banking Expansion (New Brunswick,
New Jersey: Rutgers University Press, 1961), p. 157.
16
SECTION 1. Section 9-1111 of the General Statutes of 1949 ishereby amended to read as follows: Sec. 9-1111. The generalbusiness of every bank shall be transacted at the place of busi-ness specified in its certificate of authority, and it shall beunlawful for any bank to establish and operate any branch bank,or branch office or agency or place of business: Provided, Thatany bank domiciled in this state may, or two (2) or more suchbanks may jointly establish and maintain not more than one (1)
detached or attached auxiliary teller office to be used as amotor vehicle off-street banking facility, such office to belocated within two thousand six hundred (2,600) feet of the pre-mises specified as its place of business in its certificate ofauthority, but not within fifty (SO) feet of another nonpartici-pating bank or auxiliary teller office thereof: Provided, how-ever, That the services of such teller office be limited to re-ceiving deposits of every kind and nature, cashing checks ororders to pay, issuing exchange, and receiving payments payableat the bank.
i
The following is the Kansas Law pertaining to bank holding
companies
:
9-504. Bank holding companies; prohibited acts; definitions.For the purpose of this act, the following definitions shallgovern:
(a) "Bank holding company" means any company: (1) Whichdirectly or indirectly owns, controls, or holds with power tovote, twenty-five percent (251) or more of the voting shares oftwo (2) or more banks or of a company which is or becomes a bankholding company by virture of this act; (2) which controls inany manner the election of a majority of the directors of eachof two (2) or more banks; or (3) for the benefit of whose share-holders or members twenty-five percent (251) or more of the vot-ing shares of each of two (2) or more banks or a bank holdingcompany is held by trustees; and for the purposes of this act,any successor to any such company shall be deemed to be a bankholding company from the date as of which such predecessor com-pany became a bank holding company. Notwithstanding the fore-going (A) no bank shall be a bank holding company by virtueof its ownership or control of shares in a fiduciary capacity,except where such shares are held for the benefit of the share-holders of such bank.
2
^The Laws of Kansas . Chapter 72, Senate Bill No. 105, Section 1,Approved April 5, 1957.
2 c1959 Supplement to General Statutes of Kansas 1949 . $ 9-504.
17
9-505. Same; unlawful acta. It ehall be unlawful for any bank
holding company, aa defined in aection 1 (9-504) hereof: (1) To
take any action which reaulta in a company becoming a bank holding
company as defined in this act; (2) for any bank holding company
to acquire direct or indirect ownership or control of any voting
shares of any bank if, after such acquisition, such company will
directly or indirectly own or control more than twenty-five percent
(251) of the voting sharea of two or more banks; (3) for any bank
holding company or subsidiary thereof, other than a bank, to ac-
quire all or substantially all of the assets of a bank; or (4)
for any bank holding company to merge or consolidate with any other
bank holding company. Notwithstanding the foregoing, this prohi-
bition shall not apply to: (A) Shares acquired by a bank, (1)
in good faith in a fiduciary capacity, except where such shares
are held for the benefit of the shareholder of such bank, or (2)
in the regular course of securing or collecting a debt previously
contracted in good faith, but any shares acquired after the date
of enactment of this act in securing or collecting any such pre-
viously contracted debt in excess of the number of shares permitted
under the terms hereof as hereinbefore set forth shall be disposed
of within a period of two years from the date on which they were
acquired; or (B) additional shares acquired by a bank holding com-
pany in a bank in which auch bank holding company owned or controlled
a majority of the voting shares prior to such acquisition. 1
Thus, in essence, the Kansas Law pertaining to bank holding com-
panies "restricts the expansion of existing bank holding companies and
forbids the organisation of new companies."2
In 1961, a bill pertaining to branch banking was before the House
of Representatives and Senate of the state of Kansas, but it failed to
pass. It was introduced on February 10, 1961, in the House of Repre-
sentatives as a bill which would extend the 2,600 foot limitation to
3,600 feet (other distances were proposed before the bill was killed,
one for 6,500 feet). This proposed extension of the distance for
auxiliary teller offices was intended to be statewide. On March 30, 1961,
1959 Supplement to General Statutes of Kansas 1949 . 5 9-505.
2Fischer, p. 169.
18
the Senate Banking Committee "reported that; the limitation be left
at 6^500 feet for banks in Wyandotte and Johnson counties (as based
on amounts relating to population and total assessed taxable tangible
valuation) and for all other counties jthej limit be 2,600 fee."
On April 5, a vote of 19-19 in the Senate killed this bill.
Even if the Senate had passed this measure, it "would. . .have been
subject to concurrency by the House in the Senate amendments or non-
concurrence 1,7 which would have thrown the bill into conference pro-
cedures between the two houses."2
Hfhe Kansas Banker , published monthly by the Kansas BankersAssociation, Topeka, Kansas, April, 1961, p. 15.
2Ibid.
CHAPTER IV
BRANCH BANKING IN OTHER STATES
The Extent
Kansas Laws restrict branch banking to such a great extent--to
"auxiliary teller offices" instead of full fledged branches capable
of performing numerous other banking services—that, when considered
with other states, Kansas is grouped with those which in effect have
unit banking. Under somewhat general criteria, the following is a
classification of the 50 states according to their banking laws:
TABLE 6*
CLASSIFICATION OF STATES BY BRANCHING LAW
(1963)
AlaskaArizonaCaliforniaConnecticutDelawareHawaiiIdahoMaineMarylandNevadaNorth CarolinaOregonRhode IslandSouth CarolinaUtahVermontWashington
AlabamaGeorgiaIndianaKentuckyLouisianaMassachusettsMichiganMississippiNew JerseyNew MexicoNew YorkOhioPennsylvaniaSouth DakotaTennesseeVirginiaWisconsin
Statewide Limited'
Branch Branch UnitBanking Banking Banking
ArkansasColoradoFloridaIllinoisIowaKansasMinnesotaMissouriMontanaNebraskaNew HampshireNorth DakotaOklahomaTexasWest VirginiaWyoming
*From Appendix A, page 341, Paul M. Horvitz"Branch Banking and the Structure of Competition,"Review , Vol. 1, No. 3 (March, 1964).
19
and Bernard Shull,The National Banking
Using the classification of states by branching law as given
in Table 6, Table 7 gives information on banking concentration in the
statewide branching states, limited branching states, and unit banking
states
:
TABLE 7*
NUMBER OF COMMERCIAL BANKS AND CONCENTRATIONDECEMBER 31, 1962
Statewide BranchingStates 17 1,010 59
Limited BranchingStates 17 5,573 328
Unit BankingStates 16 6,831 127
All States'* 50 13,414 268
Number Number Average Number Average ProportionsState of of of Banks of Deposits Held by
Cla8sificationb States Banks per State Five Largest Banksc
75.5
41.2
51.4
aFrom Table 7, page 313, Paul M. Horvitz and Bernard Shull,"Branch Banking and the Structure of Competition," The NationalBanking Review . Vol. 1, No. 3 (March, 1964).
"For states within each classification, see Table 6.
cMeans of ratios for each state.
"Excludes District of Columbia.
As Table 7 shows, the average proportion of deposits held by the
five largest banks is the greatest for the statewide branching states,
next greatest for the limited branching states, and least for the unit
banking states. In the same manner, the average number of banks per
state is least for the statewide branching states, more for the limited
21
branching states, and greatest for the unit banking states.
At this point> the reader may want to refer again to Table 3 on
page 4 of this paper, which shows the increase in the number of banks
operating branches and the increase in the ratio of branch to unit
banks in the United States.
Some Banking Laws in Other States
In this paper we have divided the state banking laws into three
categories: statewide branch banking, limited branch banking, and unit
banking. The Kansas banking law, previously given in this paper, is an
example of a state law permitting only unit banking. It limits branch-
ing to such an extent that only "auxiliary teller offices" are permitted
instead of "true" branches; thus, in effect, only a unit banking system
exists in Kansas. Texas is an even better example of a state having a
unit banking system than Kansas. In Texas "an express prohibition of
branch banking is contained in the constitution of the State, as well
as in the statutes." 1 The following is the applicable part of the
Texas Constitution: "...Such body corporate (banking corporation)
shall not be authorized to engage in business at more than one place
which shall be designated in its charter...."2 The relevant part
of the Texas Civil Statutes is: "No State, national or private bank
^United States House of Representatives, Banking, Concentrationand Small Business , p. 32.
Texas Constitution, art. 16, sec. 16. (from, Banking Concen-
tration and Small Business , p. 32).
22
shall engage in business in more than one place, maintain any branch
office, or cash checks or receive deposits except in its own banking
house."1
California is a good example of a state which permits statewide
branch banking. The following is the portion of California Law which
pertains to its branch banking:
500. When authorised by the superintendent as provided in thischapter, a bank or trust company, pursuant to a resolution of itsboard of directors, may establish and maintain one or more branchoffices within the State.
501. The request for authority to establish a branch office shallbe set forth in an application in such form and containing such in-formation as the superintendent may require and shall be accompaniedby an application fee of one hundred dollars ($100) for each newbranch office.
502. Before opening a branch office a bank or trust companyshall have and shall thereafter maintain as long as the branch isoperated, for each branch so opened paid-up capital in additionto the paid-up capital required by Chapter 3 of this division,equal to the following:
(a) If the branch office will be located in the city inwhich the head office of the bank is located or in a city inwhich the bank has already established a branch office, fiftythousand dollars ($50,000).
(b) If the branch office is to be located elsewhere, theamount required by Chapter 3 of this division to open a newbank in the place in which the branch will be located, exclu-sive of the amount required for a trust department.
(c) If the branch is to engage in no other banking businessthan the trust business, fifty thousand dollars ($50,000).503. The superintendent may give or withhold his approval of an
application in his discretion but he shall not approve an applicationuntil he has examined into the matters referred to in subdivisions0>)» (c), and (f) of Section 361 and until he has ascertained to hissatisfaction that the following are true:
(a) That the public convenience and advantage will be pro-moted by the establishment of the proposed branch office.
(b) That the bank or trust company has the capital requiredby Chapters 3 and 4 of this division.
2
LArt. 342-903, Vernon's Civil Statutes of Texas, Anno, (from,
Banking Concentration and Small Business , p. 33).
'State of California, Banking Law and Related Acts . December 31,1962, pp. 17-18, Chapter 4, Article 1, ^500 to 503.
23
507. When authorized by the superintendent a bank or trust
company may change the location of a branch office from one loca-
tion to another in the same vicinity. 1
The concepts of "unit banking" and '•statewide branch banking" are
fairly clear-cut because they represent the two extremes; but between
these two extremes the possibility exists for many different forma,
and degrees, of branch banking. Table 8 gives some of these various
forms which branch banking may take, as they exist in the United States
(this listing of states isn't intended to coincide exactly with the list
of "Limited Branch Banking" states, as given in Table 7, page 20 of this
paper)
:
1Ibid . . p. 18,^507,
24
TABLE 8*
THE BANKING LAWS OF SOME STATES PERMITTING
LIMITED DEGREES OF BRANCH BANKING
(1959)
Alabamal New Mexico6
Arkansas2 New York7
Georgia3 North Dakota^
Indiana1 Ohio2
Iowa^ Pennsylvania2
Kentucky1 Tennessee 1
Massachusetts 1 Utah1
Michigan2 Virginia1
Mississippi5 Alaska^
New Jersey1 Hawaii8
1Permits branches within the city and county of head office.
Permits branches within city, county, or county contiguous to
county of head office.
3Permits banks in certain classes of cities to establish brancheswithin limits of city of head office.
Sennits only "offices," "agencies," or "stations" for limitedpurposes, as distinguished from branches.
Permits branches within 100-mile radius of head office.
Permits banks to establish branches within the county or countycontiguous to the county in which the parent bank is located, or withina certain distance of the parent bank.
Permits banks to establish branches within the limits of thebanking district in which the parent bank is situated.
aPermits branches within certain zones.
From Table XVII, page 35, United States House of Representatives,Banking Concentration and Small Business , A Staff Report to the SelectCommittee on Small Business, 86th Congress, 2nd Session (December 23,1960).
CHAPTER V
BRANCH BANKING STUDIES
Horvitz Studies
Paul M. Horvitz of Boston University is a Senior Economist in the
Department of Banking, Office of the Comptroller of the Currency, Wash-
ington, D. C. He has published material on such topics relating to
branch banking as, "Economies of Scale in Banking," "Branch Banking
and the Structure of Competition," and "The Impact of Branch Banking
on Bank Performance"--the last two of which he has done in conjunction
with Bernard Shull, another Senior Economist in the Department of Bank-
ing. Some of the conclusions and findings given in these articles will
be reported here without an attempt being made to explain the studies
and statistics used to arrive at these conclusions. From the descrip-
tions given of these studies, it appears that they were carefully
thought out and interpreted; and generally, the tone of their "find-
ings" supported the case for statewide branch banking.
The major results and findings in the article, "Branch Banking
and the Structure of Competition," by Horvitz and Shull are as follows:
over the last decade branch banking has been associated with a de-
clining number of banks, and there are far fewer banks in the branch
banking states than in the unit banking states. In recent years,
though, the decline in the number of banks has slowed down despite
25
26
the continued rapid expansion of branch banking. In the non-
metropolitan areas of the United States, on the average, there are
no fewer competitors in the branch banking states than in the unit
banking states in the most important banking markets—especially, the
local market. Banking concentration is typically higher in the
metropolitan areas of branch banking states than it is in the metro-
politan areas of unit banking states, but it is very high in both,
and there is no evidence that the difference is economically signi-
ficant. The economic barriers to entry in banking are low in com-
parison to such barriers in manufacturing, and they are probably
somewhat lower under branch banking than under unit banking. 1
In this article, they stated that:
Our analysis suggests that neither in terms of number of com-
petitors, nor concentration..., nor in terms of the condition of
entry (potential competition) have the structures of local bank-
ing markets been adversely affected by branch banking in the
United States. The weight of evidence suggests that, to the con-
trary, market structures are adversely affected by restrictions
on branch banking.
2
The results of one of their studies, reported in this article,
showed that there is a tendency for economies of scale to increase
(for the costs of a bank to decline) until it reacht? a size of,
"2-5 million in deposits. Costs are then relatively constant until
the very large size of $100-500 million is reached."3 It was their
1Paul M. Horvitz and Bernard Shull, "Branch Banking and theStructure of Competition," The National Banking Review , Vol. 1, No. 3
(March, 1964), pp. 340-341."
2Ibid . , p. 341.
3Ibid. . p. 307.
27
view, though, that "economies of scale do not pose a serious barrier
to entry in banking," 1 and that "the most important barrier to entry
in banking is found not in the economic factors, but in the regulatory
policy and procedure."2
According to them, there is a danger of overestimating the number
of actual competitors in banking. "There is a natural tendency in a
country where free trade is the norm to look at numbers of firms and
ignore geographic barriers that keep them from competing."-* Many small
banks in the United States are:
...locked in sanctuaries protected against outside competition;
they can neither grow to an efficient size nor disappear throughfailure. Over one-half the banks in the United States have less
than $5,000,000 in deposits, and nearly one-quarter have less
than $2,000,000. There is, further, some evidence to suggestthat the unit banks absorbed through merger in branch bankingcommunities have generally been the relatively inefficient ones.
Horvitz and Shull also present an argument for branch banking
which rests upon the unbalanced banking needs of some communities.
They say that even if a unit bank could be operated as efficiently
as the branch of a large bank, the branch would be better suited to
certain types of communities, because many smaller communities or
suburban areas present the need for a very unbalanced banking business.
Paul M. Horvitz and Bernard Shull, "Branch Banking and the Structureof Competition," p. 308.
2Ibid . . p. 310.
3Ibid . . p. 330.
4Ibid . . p. 318.
Some wealthy suburban communities may generate sizable time deposits
and personal checking accounts, but they may have almost no demand for
business loans. In contrast, other residential areas may provide a
substantial demand for installment and mortgage loans, but an inadequate
deposit volume. The branch system, "provides for mobility of funds and
can shift excess reserves for lending through other outlets of the system.
Thus there are offices of some branch banks which have loan-to-deposit
ratios of over 100 percent."1
It is necessary for unit banks to maintain some reasonable balance
between total loans and total deposits, and there must also generally be
some balance in the loan portfolio between real estate, consumer loans,
and commercial loans. "Thus entry to a potential unit banker looks at-
tractive only in an area in which a sufficient volume and diversified
acomposition of business appears available."*
They also give another reason why entry by a new branch may be
easier than entry by a new bank:
The new branch can draw upon a reservoir of trained management
personnel developed by the large branch system. ..In addition...
the branch can benefit in its early months from the service of
experienced, specialised personnel who can be transferred tem-
porarily to the new branch.
3
The main results and conclusions of another article by Paul
Horvits and Bernard Shull, "The Impact of Branch Banking on Bank
^Paul M. Horvitz and Bernard Shull, "Branch Banking and the
Structure of Competition," p. 337.
2Ibid., p. 337.
3Ibid., pp. 337-338.
29
Performance," are as follows: "Host recent studies of economies of
scale have found that branch banks tend to have higher operating costs
than unit banks of similar size."1 Most evidence suggests that unit
banks can attain minimum optimum size at substantially lower asset sizes
than branch banks. Branching has the advantage of permitting growth by
way of geographic extension, but it has the disadvantage of raising the
minimum optimum size of banks* The diseconomies of branching can be
overcome, though, by growth as long as fairly extensive branching is per-
mitted in a particular state. 2
They give in the favor of the efficiency of branch banking the
fact that:
It has generally been confirmed that branch banks as a group
devote a larger proportion of their resources to loans than unit
banks as a group. Unit banks must generally have higher ratios
of liquid to total assets than branch banks.
3
It is their conclusion that, "branch banking is likely to result
in a somewhat greater convenience of banking facilities in moderate
and large sized non-metropolitan areas. "^ The results of some of their
studies suggest that, "branch banks are more apt to satisfy the hetero-
geneity of consumer demands than are unit banks, and in medium and large
size communities to provide more convenience in the form of more offices."'
''Paul M. Horvitz and Bernard Shull, "The Impact of Branch Bankingon Bank Performance," The National Banking Review , Vol. 2, No. 2 (December,
1964), p. 145.
2Ibid .
3Ibld . , p. 146.
4Ibid . . p. 149.
5Ibid., p. 155.
They say that one important difference between branch banking systems
and unit banks is in the rang* of services provided. Branch banking
systems "clearly outstrip" unit banks in the variety of produce offered
and in the convenience provided by multiple offices- -in towns large
enough to make more than one banking office a convenience. 1
Also, branch banking appears to influence bank performance in
other ways. According to Horvitz and Shull, the existence of "permissive
branching legislation" has an effect on the performance of unit banks
—
"unit banks in branch banking states generally have higher loan-asset
ratios and higher ratios of time-to-total deposits, and... they pay
higher rates of interest on time deposits than unit banks in unit bank-
ing states."2
Arizona—New Mexico Study
The article, "Branch Banking and Economic Growth in Arizona
and New Mexico," originated as a thesis entitled, "The Branch Banking
Question in Arizona and New Mexico: A Comparative Study," written
and submitted by Mr. Paul D. Butt in partial fulfillment of the require-
ments for his degree of Master of Business Administration at the Uni-
versity of New Mexico. It was begun in 1958 and completed in the spring
of 1959. As with the Horvitz studies, the results of Mr. Butt's work
will be given here without an attempt being made to explain the studies
and statistics used in arriving at them.
1Paul M. Horvitz and Bernard Shull, "the Impact of Branch Bankingon Bank Performance," p. 178.
2lbid.
31
This study examined the "validity of two opposing philosophies"
concerning branch banking. It was based upon comparisons of economic
activity between 1947 and 1959 in Arizona and New Mexico, one of which
permits unlimited branch banking, while the other has a system of branch
banking, "so limited as to constitute little more than unit banking."
The success of the banking operations in these two states was measured,
by the relative contribution of each system to its state's econ-
omic progress, with the contributions being measured in turn (1)
by the extent to which bank funds were used in earning assets,
(2) by the magnitude of interest costs to borrowers, (3) by the
availability of banking facilities, (4) by a comparison of bank
failures.
2
Mr. Butt summarised the banking laws of the two states somewhat
as follows: Arizona permits unlimited branch banking, and the only
qualifications for the opening of a branch are those of meeting the
standards of public convenience and advantage and of possessing mini-
mum amounts of capital and surplus. New Mexico permits a form of
limited branch banking such that, "a branch may be opened either in
the same county in which the parent bank is located, in an adjacent
county if there is no bank located in such county, or within a radius
of 100 miles of the home bank provided that the county in which the
branch is to be located has no bank already in operation."3 But ac-
cording to Mr. Butt, "No matter what it is called, the limited branch
^Paul D. Butt, "Branch Banking and Economic Growth in Arizona and
New Mexico," New Mexico Studies in Business and Economics: No. 7 , Bureau
of Business Research, The University of New Mexico, Albuquerque, New
Mexico (1960), p. 1.
2lbld .
3Ibid . . p. 2.
32
banking system in New Mexico is, for all practical purposes, really a
system of unit banking," and, "certainly, the primary advantages to be
obtained from branch banking are not present in any of the state's
systems."1
The following are, in my own words, the conclusions reached by
Mr. Butt as reported in his study:
1. The economic growth and development of Arizona exceeded that
of New Mexico over the period studied (from 1947 to 1959) , and the evi-
dence strongly supports the contention that during this period the un-
limited branch banking system of Arizona contributed more to Arizona's
economic development.''
2. Throughout the period analyzed, Arizona's banks kept a
higher proportion of their funds invested in loans and discounts; and
the average interest cost to the user of bank funds in Arizona was
lower than in New Mexico, yet the Arizona banks actually earned higher
returns on capital. 3
3. Banking facilities expanded more rapidly in Arizona,
and they were more widely available than in New Mexico—with the
unlimited branch banking system apparently being the chief contri-
buting force.
1Paul D. Butt, p. 2.
2Ibid.
.
PP< , 1 and 18.
3Ibid.
.
P. 21.
4Ibid.
33
4. Stability of branch banking seems to have been greater than
that of unit banking because of the wider economic and geographic
diversification of loans under unlimited branch banking. 1
5. Mr. Butt recommended, upon the basis of the evidence pre-
sented in his thesis, that a law be enacted in New Mexico which would
permit unlimited branch banking, since this system—he felt—would be
the kind most advantageous in New Mexico both to the consumer and to
the general economy. 2
Paul D. Butt, p. 21,
2Ibid.
CHAPTER VI
ADVANTAGES AND DISADVANTAGES OF BRANCH BANKING FOR KANSAS
The "Traditional" Arguments Given For and
Against Branch Banking
The discussion of branch banking in this paper thus far has been
based upon the results of studies, the opinions of experts, and thoughtful
analysis. The subject of branch banking is highly controversial, and
often the arguments given in favor of, or against, branch banking are
emotionally charged and are based upon few real facts. Although some
of these arguments may not be of great value in the quest for the "cor-
rect" or "right" answers concerning branch banking (the "correct" or
"right" answers must, of necessity, be based upon studies and empirical
observations), even so, many prominent men high in financial circles
use, and believe in, these arguments. Thus, no study of branch banking
would be complete without outlining briefly some of these arguments; and
so, the following is a brief list of the "disadvantages" commonly listed
as going along with branch banking (along with which will be a few re-
marks as to their faults or validity):
1. Independent unit banks know the needs of their community
better, and can meet these needs on a more personal basis, than the
branches of large branch banking systems. These locally owned and
Hf. H. Steiner, Eli Shapiro, and Ezra Solomon, p. 90.
34
35
controlled banks are more responsive Co local needs, and the management
of these banks will be more enterprising In promoting local projects.
*
2. Branch banking "fosters monopoly." There may be some degree
of truth In this, but It appears likely that "the competition between
rival branch organizations of large size might be more effective in
providing good banking services than would competition among a large
number of smaller unit banks. "2
3. "The single-office independent bank is likely to have a more
flexible management. Decisions can be made locally on the spot without
waiting for the approval of a distant main office. "3
4. It is difficult for a supervisory authority to adequately
examine a branch banking system. This seems to have been somewhat
solved, though, by a plan used in California whereby "state examiners
audit a random sample of the branch offices simultaneously. "^
3. If a large branch system were not competently managed and
were to fail, the "ensuing disaster" would be very widespread. "In
fact, the failure of a large branch banking system may imperil the
banking structure of a nation."5
Pritchard, p. 134.
^Financial Institutions , p. 134.
3Pritchard, p. 134.
Tinancial Institutions , p. 135.
5Ibid.
36
6. With branch banking "loans made to local borrowers will be
administered by bankers not especially interested in local welfare or
keenly aware of local credit needs." 1 It would be a short-sighted
branch banking system that would, knowingly, pursue this policy; be-
cause the welfare and growth of the system as a whole would be de-
pendent upon the welfare and growth of each of the local branches
—
and their local communities—making up the branch banking system.
7. There is less chance of competition among the branches of
branch banking systems with respect to service charges, interest rates
on time deposits, and services rendered to customers than is true of
independent unit banks. 2 The Horvitz studies reported in this paper
suggest that this usually isn't the case.
The following are some of the "advantages" commonly given for
branch banking:
1. Branch banking provides safety resulting from a wide diversi-
fication of assets. Branch banking systems are less likely to fail be-
cause they are spread over many localities; and, because of their size,
they are able to achieve a better diversification of assets than unit
banks .
3
2* Small unit banks are often too small to supply all of the
specialized banking services that are needed in their community. The
financial Institutions , p. 134.
2Pritchard, p. 134.
Financial Institutions , p. 133.
37
branches of a large banking system are better able to supply these
services. 1
3. A branch office can be established more quickly and at a
lower capital cost than a unit bank. Statistics seem to uphold the
validity of this argument. 2
4. Branch banking promotes a better distribution and mobility
of credit and banking resources. 3 "Not only does this mean a better
accomodation of local loan demands but [also it] results in an over-all
reduction in interest rates. '**
5. The loan limits of many small unit banks may be too small to
meet the needs of their largest borrowers and, although they are able
to make these loans with the aid of their larger city correspondent
banks, the branch banks of large branch banking systems are faster
and more efficient at handling these loan needs. 5
The above have been only a few of the arguments which have been
put forward in favor of, and against, branch banking. Other than where
the validity or falsehood of these arguments has been pointed out (as
based upon studies or empirical evidence, for example by Horvitz)...it
is hard to say whether these arguments are valid or not. The facts just
Pritchard, p. 134.
^Financial Institutions , p. 134.
3Ibid . . p. 133.
Pritchard, pp. 134-135.
5Ibid. . p. 134.
aren't available, and this ought to prove a fruitful field for further
research.
Growth in the Number of Suburban Banks
in Wichita Since 1950
Wichita appears to be the best example in Kansas of a growing
metropolitan area in which a number of new suburban banks have been
chartered (to see the population growth in Wichita, refer to Table 2,
on page 2 of this paper). From Table 9, it can be seen that in 1950,
there were 6 banks in Wichita (all of them downtown banks), while in
1965, there were 14 banks in Wichita (seven of the eight new banks being
suburban banks).
The idea presented in Chapter I of this paper was that, under
more liberal banking laws in Kansas, it seems likely that the existing
downtown banks in Wichita could have efficiently handled a portion of
this growing suburban business by means of establishing suburban branches.
It also seems reasonable to assume that some of these suburban areas
would have presented somewhat of an unbalanced banking situation--"un-
balanced banking needs"--as discussed in the summary of the Horvitz
Studies in this paper. If this unbalanced banking situation indeed
existed, the results of the Horvitz Studies suggest that branch banking
would be more efficient at handling this situation than unit banking.
Although Wichita is the best example of suburban bank growth,
perhaps a similar trend could be found in Topeka and in metropolitan
Kansas City, Kansas. Included here is information only on the growth
of suburban banking in Wichita (Table 9) for the following reasons:
39
TABUE 9*
GROWTH IN THE NUMBER OF WICHITA BANKS
(1950 to 1965)
Banks: Suburban (S), or
Downtown (D); and Year
Chartered, eg: (1906)
Deposits, In Thousands of Dollars
(All Statements as of June 30th)
1965 1955 1950
(S) Boulevard State Bank (1954) 12,949
(S) Central State Bank (1962) 5,938
(S) East Side National Bank (1955) 7,050
(D) Pirst National Bank (1876) 104,620
(D) Fourth National Bank (1887) 214,678
(D) Kansas State Bank (1934) 28,969
(S) National Bank of Wichita (1964) 2,616
(S) Parklane National Bank (1962) 4,732
(S) Seneca National Bank (1961) 5,190
(D) Southwest National Bank (1915) 20,220
(D) Stockyards National Bank (1910) 21,072
(S) Twin Lakes State Bank (1965) «
(D) Union National Bank (1906) 57,202
(D) Wichita State Bank (1953) 9,203
5,267
105,911
172,198
19,341
13,684
5,350
25,216
3,784
90,820
121,455
8,541
9,004
4,500
16,303
*The Twin Lakes State Bank had 882 thousand dollars of deposits
as of December 31, 1965.
*Prom statistics given in the Rand McNally International Bankers
Directory, The Bankers Blue Book (Chicago, Illinois: Rand McNally &Company), Final 1950 Edition, Final 1955 Edition, and Final 1965 Edition.
40
The population growth in Topeka, although extremely rapid, has been
somewhat slower than the population growth in Wichita. In beginning
to compile a table similar to the one for Wichita (Table 9) for Topeka,
it was found that the banking situation isn't as clear-cut in Topeka
and that several bank mergers have somewhat confused the situation as
far as presenting the banking information for Topeka in an orderly and
meaningful table. The city of Kansas City is located on a state line,
and it appeared that any suburban banking information gathered on it
would have had doubtful value.
More Extensive Branch Banking for Kansas
The question of whether branch banking- -and if so, to what degree-
would be a benefit to Kansas is a difficult one to answer. Not enough
data and research directed specifically at the possibility of branch
banking in Kansas is available, so the only way to attempt to answer
this question is to draw inferences from studies that have been done
in other states.
From the Horvitz Studies of branch banking throughout the United
States and from the study which compared Arizona and New Mexico, it appears
that branch banking of some degree would be a benefit to Kansas. The
problem comes in trying to find the proper form and proper degree of
branch banking for Kansas. It seems that a minimal change in Kansas
Banking Laws should include provisions for branching within the city
limits (including the "suburbs") of the major cities in Kansas--Wichita,
Topeka, and Kansas City... and later, perhaps some of the other cities
in Kansas after they have reached a certain size.
41
The Arizona-New Mexico Study pointed out that a great deal is at
stake for a state... the "economic growth." If the banking system in
Kansas is a handicap to its economic growth in relation to that of
other states, something should be done about it. As was stated in,
An Evaluation of Commercial Banking in Kansas, Internal Report to the
Kansas Bankers Association , in a somewhat different context, "While
many Kansas communities possess adequate banking facilities and will
continue to do so for some time, other communities experiencing a
change in both population and the level and nature of economic acti-
vity currently pose a real question as to whether the general public
is enjoying the maximum level of banking services." 1
1Philip B. Hartley and Robert 0. Schrock, An Evaluation ofCommercial Banking in Kansas, Internal Report to the Kansas BankersAssociation (Lawrence, Kansas, January, 1964) , p. 142.
42
CONCLUSIONS
Although several of the major cities in Kansas appear to have
some need for branch banking, it appears likely that if the branch
banking question were to come up in Kansas , the rural areas would op-
pose any movement toward branch banking. There appears to be a mildly
growing sentiment among the city bankers of the larger city banks in
Kansas in favor of branch banking, but these city bankers seem reluctant
to speak out on the matter. They are afraid that if they come out in -
favor of branch banking they stand to lose correspondent banking business
from the smaller banks in the rural areas of Kansas.
If the branch banking question were to develop in Kansas, it
seems likely that these small rural banks would oppose branch banking.
As a matter of self-interest they would probably fear the possibility
that, under statewide branch banking laws, large city banks could build
"empires" by buying up banks in all parts of the state. Although they
might be somewhat "hazy" about how it could occur, these small rural
banks would perhaps fear that, through their size, the large banking
systems, which could grow up under liberal banking laws, would have
an "unfair advantage" and would have tools at their disposal which
would put smaller banks into a "squeeze."
One of the major advantages of branch banking appears to be
that it can provide banking services for a community which has an
unbalanced banking situation. Some communities, or suburban areas,
might have the potential for large amounts of deposits and yet almost
no demand for loans. Other communities might have a sizable demand
43
for loans but not an adequate deposit volume to support these loans.
Branch banking appears to be the answer to this problem. The branches
of the same bank existing in these two areas might be able to balance
each other out* while a single, independent unit bank would have a
difficult time existing, or coming into existence, in either of these
areas.
Thus, branch banking might be of benefit to suburban areas and
shopping centers- -if unbalanced banking situations exist. In the same
manner, it might be of service to rural areas and small communities which
otherwise wouldn't be able to support a bank. If Kansas is to strive for
maximum economic growth, and for the best possible banking services for
its people, branch banking may provide some of the answers.
44
ACKNOWLEDGMENTS
The author wishes to express his sincere gratitude to Mr. Carl A.
Bowman and The Kansas Bankers Association, Professor Donald F. DeCou,
Professor Merton L. Otto, and Professor John 0. Rees for the valuable
suggestions and time given by them during the preparation of this
report
.
REFERENCES
Books
Alhadeff, David A. Monopoly and Competition in Banking . Berkeley,
California: University of California Press, 1954.
Banking and Monetary Studies . Edited by Deane Carson. Homewood,
Illinois: Richard D. Irwin, Inc., 1963.
Cartinhour, Gaines T. Branch. Group, and Chain Banking . New York:
The Macmillan Company, 1931.
Chapman, John M. and Wexterfield, Ray B. Branch Banking . New York:
Harper & Brothers Publishers, 1942.
Collins, Charles Wallace. The Branch Banking Question . New York:
The Macmillan Company, 1926.
Financial Institutions . Edited by Roland I. Robinson. Homewood,
Illinois: Richard D. Irwin, Inc., 1960.
Fischer, Gerald C. Bank Holding Companies . New York: Columbia
University Press, 1961.
Hogenson, Palmer T. Tha Economics of Group Banking . Washington,
D. C. : Public Affairs Press, 1955.
James, Marquis and James, Bessie Rowland. Biography of a Bank. The
Story of Bank of America . New York: Harper & Brothers, 1954,
Lamb, W. Ralph. Group Banking . New Brunswick, New Jersey: Rutgers
University Press, 1962.
Pritchard, Leland J. Money and Banking . Boston, Massachusetts:Houghton Mifflin Company, 1964.
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. Chicago,Illinois: Rand McNally & Company, Final 1955 Edition.
45
Rand McNally Bankers Directory. The Bankers Blue Book . Chicago,Illinois: Rand McNally & Company, Final 1965 Edition.
Spofford, Gavin. Guideposts for Banking Expansion . New Brunswick,New Jersey: Rutgers University Press, 1961.
Steiner, W. H. ; Shapiro, Eli; and Solomon, Ezra. Money and Banking .
An Introduction to the Financial System. New York: Holt,Rinehart and Winston, Inc., 1958.
Public Documents
Federal Deposit Insurance Corporation. Assets. Liabilities, and CapitalAccounts Commercial and Mutual Savings Banks. June 30. 1965 .
Report of Call No. 72.
General Assembly of the Commonwealth of Pennsylvania. Branch Banking .
Joint State Government Commission, Harrisburg, Pennsylvania,1957.
General Statutes of Kansas . (The sections giving present Kansas BankingLaw were furnished by the Kansas Bankers Association, Tocek*t,Kansas.)
New York State Banking Department. Branch Banking. Bank Mergers and ThePublic Interest . January, 1964.
_. Branch Banking, Bank Mergers and ThePublic Interest- -A Summary Report . January, 1964.
State of California. Banking Law and Related Acts . December 31, 1962.
United States Bureau of the Census. United States Census of Population :
I960 . Vol. I, Characteristics of the Population, Part 18,Kansas. Washington, D. C. : U. S. Government Printing Office,1963.
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United States Treasury—The Administrator of National Banks. The BankingStructure in Evolution . Washington, D. C. , 1964.
United States Treasury- -The Administrator of National Banks. Studies inBanking Competition and the Banking Structure. Washington, D. C,January, 1966.
47
Periodicals
"The Case for the Satellite Branch," Banking. Journal of the American
Bankers Association , Vol. LVII, No. 10 (April, 1965), pp. 52,
& 98-102.
Horvitz, Paul M. "Economies of Scale in Banking," Private Financial
Institutions , Englewood Cliffs, New Jersey: Prentice-Hall,
Inc., 1963, pp. 1-54.
; and Shull, Bernard. "Branch Banking and the Structure
of Competition," The National Banking Review , Vol. 1, No. 3
(March, 1964), pp. 301-341.
« "The Impact of Branch Banking on
Bank Performance," The National Banking Review , Vol. 2, No. 2
(December, 1964), pp. 143-188.
"Kansans in Washington Want One-Bank System," The Wichita Eagle ,
March 23, 1966, Sec. A, p. 10, cols. 1 & 2.
The Kansas Banker . Published Monthly by the Kansas Bankers Association,
Topeka, Kansas (April, 1961), pp. 13 & 15.
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1963.
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in Los Angeles, California).
Butt, Paul D. "Branch Banking and Economic Growth in Arizona and New
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"Establishing A Branch," A Bank Director's Job . Reprinted from articleswhich originally appeared in, Banking, Journal of the AmericanBankers Association , from April, 1956 through April 1964,
pp. 57-59.
48
Hartley, Philip B. and Schrock, Robert D. An Evaluation of Commercial
Banking in Kansas, Internal Report to the Kansas Bankers
Association . Lawrence, Kansas, January, 1964.
The Monopolistic Character of Branch Banking . An Address given in 1965
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We Must Keep Building. Address of Archie K. Davis, President, The
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Columbus, Ohio, Friday Noon, February 18, 1966.
PROBABLE ADVANTAGES AND DISADVANTAGES OF BRANCH BANKING
FOR THE STATE OF KANSAS
ROBERT MELVIN DEAVER
B. A., Kansas State University, 1965
AN ABSTRACT OF A MASTER'S REPORT
submitted in partial fulfillment of the
requirements for the degree
MASTER OF ARTS
Department of Economics
KANSAS STATE UNIVERSITYManhattan, Kansas
1966
Kansas i« changing from the traditionally rural state it has been
in the past into an agricultural state containing growing areas of urban
population. It appears probable that this trend will continue into the
future and may require the enactment of new laws designed to cope with
this. Present Kansas law prohibits branch banking to any greater extent
in Kansas than one drive-in branch located within 2,600 feet of the bank
which operates it. It is felt by some that this present law it too
restrictive.
Seven of the eight new banks chartered in Wichita between 1950 and
1965 were suburban banks. In some cases suburban areas provide an un-
balanced banking situation. Por example, an unbalanced banking situation
exists in an area which has a high potential for deposits and yet almost
no demand for loans. Similarly, an unbalanced banking situation exists
in an area which has a sizable demand for loans but not an adequate de-
posit potential to support these loans. Branch banking may be the
answer to this problem; the branches of a branch banking system exist-
ing in these two types of unbalanced banking areas might be able to
balance each other out, but a single unit bank would have a difficult
time existing, or coming into existence, in either of these areas.
Thus, it seems reasonable to assume that the existing downtown banks
in Wichita could have efficiently handled a portion of the growing
suburban banking business in Wichita by establishing branches, if they
had been permitted to do so under a more liberal banking law in Kansas.
Branch banking might be able to benefit suburban areas and shopping
centers in Kansas in which unbalanced banking situations exist; and, in
the same manner, it might be able to aid rural areas and small communities